Space tourism company Virgin Galactic Holdings Inc. is focusing more efforts on its future Delta class spaceships, as the company, which has begun commercial flights, faces a “tough moment” forcing a large cut to its workforce.
The Tustin-based company (NYSE: SPCE), founded by U.K. mega-entrepreneur Richard Branson, said it will step up its flight frequency and passenger load to generate more revenue and move to a larger spacecraft from the current Unity model.
The space company expects to save $25 million annually by getting rid of about 185 people, or 18%, of its workforce.
“This is a tough moment,” Chief Executive Michael Colglazier wrote in a note to staff on Nov. 7.
“These actions are being taken to remove reliance on unpredictable capital markets, and these actions protect our ability to succeed as we build and lead our industry through the long term.”
The company is estimated to employ about 150 people at the Flight office campus in Tustin.
It moved its headquarters to the city about two years ago. The local executive offices also hold the company’s engineering and design division, as well as marketing and finance functions.
Virgin Galactic’s shares have fallen about 97% from their all-time high above $55 in June 2021. The shares jumped 19% on Nov. 9 after the job cuts were announced. As of Nov. 15, the stock was trading around $2.20 and an $883 million market cap.
Virgin Galactic has been flying a spaceship called Unity that holds up to four passengers and two pilots.
A specially designed launching airplane takes the Unity aloft from Spaceport America, about 180 miles south of Albuquerque, N.M.
It reaches about 50 miles up to the edge of space, giving customers several minutes of weightlessness. It has a waiting list of more than 800 passengers seeking a flight within the next few years.
Colglazier said the company will “take a pause with Unity” at some point next year as it regears for the future.
Virgin Galactic is currently building a model called Delta that will hold six passengers and two pilots. The ship, which costs $50 million to $60 million, is expected to be ready for revenue service in 2026.
“Delta ships will have 50% more seats than Unity. So, using our most recent pricing at $450,000 per seat or $600,000 for research seats, the revenue per flight for a Delta ship is $2.7 million to $3.6 million,” CEO Colglazier told stock analysts in an earnings call on Nov. 8.
Colglazier added: “With our current expectation of Delta ships turning twice per week in steady-state operations, Delta ships would have a flight per month metric of eight, which makes the monthly revenue potential of a Delta shift up to 12 times that of Unity.”
The company expects each Delta ship, which is made of a high-temperature carbon composite, to have a vehicle life cycle of 500 or more flights.
Colglazier said the company needs to “redirect our resources toward the Delta ships while streamlining and reducing our work outside of the Delta program.”
The company in June began its commercial space flights, which totaled six as of press time.
Another well-funded competitor in the nascent space tourism sector, Jeff Bezos’ Blue Origin, says it’s “program has had 22 successful consecutive missions including three successful capsule escape tests.”
Virgin Galactic on Nov. 8 reported third-quarter revenue more than doubled to $1.7 million, forecasting fourth-quarter sales will grow to $3 million.
Analysts predict the company’s revenue will climb 137% to $15.5 million in 2024.
Turning a profit won’t be easy for the company, as it’s burning a lot of cash, including upwards of $125 million in the current quarter. The company predicted it has enough cash, $1.1 billion, to become cash flow positive in 2026.
“They face a serious uphill journey,” Justus Parmar, managing director of Fortuna Investments. told the Business Journal on Nov. 9.
“The goal should be to get Virgin to cash flow breakeven (like Elon has done with Starlink) where it’s a predicable business.
“The saving grace is this company has $1.1 billion in cash and it’s a crucial point in the company as they need to conserve the money they have wisely through this downturn in speculative markets, as there currently isn’t more money available for companies with this profile at the moment,” according to Parmar.
Looking ahead, the company says its next mission will be in January 2024, while its spaceship factory in Phoenix is set to open in the middle of next year.
The Motley Fool website predicted the new Delta spaceships could greatly increase the company’s number of flights.
“A single Delta-class mothership and four Delta-class spaceships would effectively multiply Virgin Galactic’s potential flight cadence by more than 16,” it said.
Virgin Galactic Buffeted by Interest Rate Hikes
If there’s a key point that Virgin Galactic Holdings Inc. in Tustin wants you to know, it’s that the company is being buffeted by forces beyond its control.
They include “uncertainty in capital markets” and “high interest rates.”
The space tourism company also cited expanding “geopolitical unrest.”
“In response to this environment, Virgin Galactic has taken several important actions to ensure our existing cash runway is sufficient to reach positive cash flow,” Virgin Galactic said.
Those actions include staff cuts and a greater focus on its future Delta class spaceships.
The Federal Reserve’s current Federal Funds Rate is currently set at between 5.25% and 5.5%.